IRS and Private Partners Tout Success in Combating Identity Theft

The Internal Revenue Service, which has struggled for years to get a handle on the criminal theft of taxpayer identity information, on Monday released encouraging numbers on results of its Security Summit partnership with states and industry.

“At a time when many in the private sector continue to struggle with these issues, the tax community has made major progress working together to stop identity theft and refund fraud,” Internal Revenue Commissioner Chuck Rettig said. “In 2018, our partnership protected more taxpayers and more tax dollars from tax-related identity theft.”

The partnership with state tax agencies and private-sector cyber-specialists, launched in 2015, created a Theft Tax Refund Fraud Information Sharing and Analysis Center that now consists of 65 groups, the IRS noted. It has been tackling a problem that threatens individuals, companies and tax preparers, at a time when the agency’s programs to thwart identity theft have appeared on the high-risk list of the Government Accountability Office.

The new results include that from 2015-2018:

• The number of taxpayers reporting they were identity theft victims fell 71 percent;
• The number of confirmed identity theft returns stopped by the IRS declined by 54 percent (though there was a slight uptick in confirmed faulty returns last year);
• The IRS protected a combined $24 billion in fraudulent refunds by stopping the confirmed identity theft returns; and,
• Financial industry partners recovered an additional $1.4 billion in fraudulent refunds.

The progress was linked to specific procedural and software adjustments in combating tax refund fraud based on identity theft.

In 2016, Security Summit participants shared dozens of elements from tax returns that could be indicators of fraud, among them the length of time to prepare a tax return, the agency explained. The IRS then “enhanced and expanded its fraud filters and added protections to business as well as individual tax returns,” it said. “States requested more information such as driver’s license numbers,” and software providers strengthened password requirements to protect accounts and added multi-factor identity authentication. “Debit card companies tightened their practices, and more financial institutions helped recover fraudulent refunds.”

Those tools are designed to thwart ever-changing tactics used by thieves, which range from using stolen Employer Identification Numbers to create fraudulent W-2 Forms to impersonating business executives to convince payroll or finance employees to disclose employee information for making fraudulent wire transfers.

The tax agency credited industry for some of the progress. “In 2018, financial institutions recovered 84,000 federal refunds totaling $112 million for the IRS,” the agency stated. “Institutions recovered 144,000 refunds worth $204 million in 2017, 124,000 refunds worth $281 million in 2016 and 249,000 refunds totaling $852 million in 2015.” 

Despite these major successes, more work remains, Rettig said. The number of businesses reporting they are victims of tax-related identity theft, the announcement noted, increased by 10 percent for 2018, with 2,450 reports, compared against 2,233 reports in 2017.

“Identity thieves are often members of sophisticated criminal syndicates, based here and abroad,” Rettig added. “They have the resources, the technology and the skills to carry on this fight. The IRS and the summit partners must continue to work together to protect taxpayers as cyberthieves continue to evolve and adjust their tactics.”